Canadian house prices could go down

Now in Canada, the mortgage interest rates are going even lower, to a new low 2.99% for a 5 year fix with the Bank of Montreal,which in thus will probably increase the house prices on the market today. Now you may say “Well that’s great isn’t it?” Well in short, NO.

For now it’s true it is a good thing, but like the old saying says, ” what goes up must go down”. Now more than ever, Canadians are buying homes that if the interest rate was, for example 5%, they could not afford, which is scary, since mortgage rates will go eventually back up which could cause many bankruptcies in the future. Second, most Canadians are not saving any money, especially since GIC’s and saving account’s interest rates are so low, which causes another dilemma.

Now the federal government wants to make new legislation which new home owners could only have a amortization of 25 years which would be a good thing, but this is still only in the talks and not official. Now what this will cause is that house prices could drop 5 to 10%. Some financial advisers say it could even be more. Don’t believe me? That happened to the US in 2008 and it could happen to us. More info can be found below

http://en.wikipedia.org/wiki/United_States_housing_market_correction

If I was going to purchase a property it would not be now. I would wait for a housing market correction before doing so, and my personal prediction is that it will happen in the next 2 years.

Now for investors in Canadian REIT’s, it is possible that you will see your shares go down by 5 to 10% as well. Now don’t panic and don’t sell low. In time it will correct itself. But during that time I would suggest to invest when you see it going down since it will be a great oppertunity to make some great gains. And remember, if your are investing in REIT’, chances are you doing so for the monthly dividends.

In conclusion, if you are planning to buy a home, I would personally recommend to wait until a house market correction occurs before doing so.

Until next time,

Antonio

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